Jimbo Posted August 25, 2019 Report Share Posted August 25, 2019 THE PERFECTLY RATIONAL GERMAN 30 YEAR BOND So the Germans sell a 30 year bond at a negative rate Lets just start at 0 Minus 1.7% german inflation rate Lets not even subtract tax as there is no interest to tax. Thats a loss of 51% of the capital over the life of the bond. Half your capital gone simply by buying this "Instrument of capital destruction" Just increase the inflation rate to 3.3% over the next 30 yerars and ALL your capital is gone. A perfectly rational bond!!!!! Link to comment Share on other sites More sharing options...
sandy beach Posted August 25, 2019 Report Share Posted August 25, 2019 The 30 year yields make perfect sense if you assume yields in the future will be even more negative than they are now by a long shot, you expect deflation and you expect big banks to buy the long term bonds of their sovereigns knowing firstly that they will be bailed out of any losses and secondly that the central banks will buy them back over par as needed quid pro quo. Link to comment Share on other sites More sharing options...
sandy beach Posted August 25, 2019 Report Share Posted August 25, 2019 What economists claim to believe in public bears no resemblance to what they admit to believing in private. Their proclamations are designed to sell a political narrative. They are guns for hire. What would be interesting is if we forced economists to compete in the open market based on actual abilities to produce positive outcomes (or not). Can you imagine if the paycheck of an economist was based solely on his or her ability to make accurate predictions? Can you imagine a field of economics based on empirical and historical data? Link to comment Share on other sites More sharing options...
sandy beach Posted August 25, 2019 Report Share Posted August 25, 2019 “Why buy German 10-years at -60 bps? Well, core inflation in Germany typically falls 330 bps in a recession. The current core is 1.2%. So that means deflation lies ahead and as such generates a de facto expected “real” yield of +1.5%.” David Rosenberg @EconguyRosie Aug 21 Twitter Link to comment Share on other sites More sharing options...
Jorma Posted August 25, 2019 Report Share Posted August 25, 2019 8 hours ago, Jimbo said: THE PERFECTLY RATIONAL GERMAN 30 YEAR BOND It has to be remembered that as long as rates are falling, which they have been doing for 38 years, that the mark to market price of notes and bonds trends higher so they look just fine on a balance sheet. When rates seemed destined to rise it wasn't easy I bet to watch the mark to market price of your paper, which is liquid, go down. It feels like deflation. The system cannot face the deflation in price of $XXX Trillions of paper. It's the day in day out, year in year out, value of your asset that weighs on minds. The total return craziness can be and is ignored. It's too far away. https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart Link to comment Share on other sites More sharing options...
aussiebear Posted August 26, 2019 Author Report Share Posted August 26, 2019 ---> Monday maelstrom Link to comment Share on other sites More sharing options...
Recommended Posts
Archived
This topic is now archived and is closed to further replies.